The company’s last dividend increase was this week when the Board of Directors approved a 6.70% increase to 64 cents/share. Clorox ‘s largest competitors include Procter & Gamble (PG), Colgate Palmolive (CL) and Kimberly-Clark (KMB).
Over the past decade this dividend growth stock has delivered an annualized total return of 8% to its shareholders.
The company has managed to deliver 4.70% in annual EPS growth since 2002. Analysts expect Clorox to earn $4.08 per share in 2012 and $4.41 per share in 2013. In comparison Clorox earned $2.07/share in 2011. The low earnings in 2011 were caused by a $1.85/share one-time non- cash Goodwill Impairment charge related to Burt’s Bee’s business. The EPS growth comes out to 12.40% per year if the effects of this goodwill impairment are excluded.
The company has a strong brand name, which helps in having strong pricing power for its brand name products. As a result, it should be able to pass on commodity price increases to customers. Future earnings growth could be driven by innovation driven new product launches as well as international expansion. US accounts for 79% of revenues. In 2007 the company introduced its Centennial Strategy where the company is focused on achieving double-digit annual growth in economic profit. A key driver of the strategy is to accelerate sales by growing existing brands, including expanding into adjacent categories, entering new sales channels and increasing penetration within existing countries. The company also anticipates using its strong cash flow to pursue growth opportunities and increase shareholder returns. Basically the company will try to deliver further growth through an ongoing focus on consumer megatrends. In addition to that the company will be targeting a 2% sales growth through product innovation. The company projects sales growth of 3-5 percent, excluding acquisitions and expansion into new geographies through 2013. Last but not least Clorox will target margin expansion and maximizing cash flow through implementation a continued robust cost-saving program and maintaining price increases the company has taken.
The company has managed to maintain a consistently high return on assets except for 2002 and 2011. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
An 11% growth in distributions translates into the dividend payment doubling almost every six and a half years. If we look at historical data, going as far back as 1983 we see that Clorox has managed to double its dividend every seven years on average.
Over the past decade, the dividend payout ratio has remained below 50%, with the exception of 2002 and 2011. Excluding the goodwill impairment, the payout ratio for 2011 would have been 56%. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Currently Clorox is attractively valued at 16.80 times earnings, has a sustainable dividend payout and yields 3.50%. I would consider adding to my position subject to availability of funds.
Full Disclosure: Long CLX, CL, KMB, PG